Tuesday Outlook: Commodities, Global Markets

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Many posters were pretty upset by the details of the AIG bailout. While Obama and politicians make a stink about $165M in bonuses to a variety of AIG employees, the real deal is the nearly $100B given to Wall Street and overseas banks in the bailout. This is the most upsetting thing I’ve seen in quite some time. It occurred on Bush’s (Paulson—the conflicted one) watch and is continuing under the new administration. The details are in this NY Times article. It should make your blood boil.

Markets rallied early on momentum carry-over from last week and the overnight action in Asia and Europe. The G-20 meeting results were a non-event but spun to suit bulls. Bernanke’s repeated prediction that the recession will end this year IF the bank situation is resolved added further happy talk for bulls' consumption.

Let’s get real. We’ve still got a severely oversold stock market from long term views. The rally we’ve experienced until this afternoon has led to short-term overbought conditions. It’s just that simple. Sometimes the chatter from TPTB can only do so much.

Let’s see what happens.

Disclaimer: Among other issues the ETF Digest maintains positions in IEF, TLT, GLD, USL and DBB.

The charts and comments are only the author’s view of market activity and aren’t recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations aren’t predictive of any future market action rather they only demonstrate the author’s opinion as to a range of possibilities going forward.

Comments

[Wasabinator:]

Once again, spot on with your commentary. It's quite amazing how the markets can be talked up, and this has all been happening while economic fundamentals are actually continuing to weaken which makes it all the more amazing. Tell someone what they want to believe and they will go with it regardless, that's what this shows us.

Time to welcome the bears back to the market now.

Mar 17 05:22 AM

[Daniel Herkes:]

Good job, again. The rally really ended before it began. The happy talk and wishful thinking can only take you so far.

Mar 17 06:19 AM

[L S:]

One day doth not a market define. Nor one week for that matter. As the previous commenters mentioned, people believe what they want to believe. In this case, the shorts want to believe that based upon one slightly down day, the bear market is back with a vengeance. The longs want to believe that it's a blip in the road. In my admittedly unprofessional opinion, the market gyrations on any given day are simply statistical noise. Any one who believes they can read through the tea leaves to interpret the future based upon daily market swings is either deluding himself (or is perhaps a former analyst from Bear Stearns or Lehman!). Fortunately I don't make my living on day trading, nor do the majority of investors. I think it's going to be a long climb before we get back to Dow 14,000, but it will get there. Whether it happens in 3 years or 15 years, no one honestly knows. But it's like college football weekly rankings... there are few reasons to believe any one's opinion, but it sure is interesting to talk about.

Mar 17 07:04 AM

[gtmcduffy@g...:]

bloggingstocker.blogsp...

Mar 17 07:09 AM

[unfaire:]

I opposed the TARP. I smelt something fishy from the very beginning. It turned out that I was right. Most of those who got the TARP money are double dipping, or even triple dipping. It goes this way:
1. I lost billions buying some crappy financial instrument like CDS from, say, AIG and other cohorts.
2. Give me billions, tax payers, so that I can stay in business. I am too big to fail.
3. So, I got billions of tax payers’ money.
4. AIG as well as all the cohorts also got billions of tax payers’ money.
5. Since and AIG and all the cohorts are flush with tax payers’ money, take back from me those crappy financial instrument and pay me in full.
6. Now, AIG and all the cohorts including me got back those crappy financial instruments, I am in poor house again. Tax payers please make me full again by giving me billions.
7. And, the cycle goes on again.
Under the guise of too big to fail, we tax payers are continue to be taken for suckers. It is still not too late to:
1. Stop bailing them out.
2. Sell off various parts of the failing financial institutions in piece meal under the government supervision.
3. Give back the tax payers first whatever that can be recovered from the sale.
4. If there is any left, let the other stakeholders have them.
In a capitalist society, when the price is right, i.e., cheap enough so that some pieces of these failing institutions can be made profitable, there will be someone who would buy them and make money from them. In doing so, most of these pieces will be healthy again and making money by themselves without any more of tax payers’ money.
Bernanke said very well. I believe this is what he meant: When the politicians do not have the will to go against the self interests of the financial biggies, neglecting the well being of the all the rest including us the tax payers and who put them in office, we will never solve the problem.

Mar 17 07:27 AM

[Sharkfin01:]

If you bought CDS from AIG or anyone else, you likely would have *made* money in the worsening credit environment, not the other way.


On Mar 17 07:27 AM unfaire wrote:


> 1. I lost billions buying some crappy financial instrument like CDS
> from, say, AIG and other cohorts.

Mar 17 08:14 AM

[prudentinve...:]

David, as always, an excellent and informative article.

Out of curiosity, I clicked on your link for the novel word "sheeple" to see its "formal definition", and was appalled see:
".... elete group."
"To accept the group mentaility....."
One would have hoped that those who presume to post an on-line dictionary would first learn to spell!

Mar 17 08:33 AM

[neel garg:]

I am pretty sure that maket is going to go below 6000. Make sure you take part in buying the stock FAZ. It is a triple leveraged financial commodity put.

For finding the right broker for the stock visit stockscompare.com

Mar 17 08:33 AM

[AndrewBaker:]

Good stuff, as always. I got into FAZ last week a little early (!), but stuck with it (avoiding the urge to daytrade FAS, though perhaps I should have) and added more on Friday. Wish me luck.

Industrial metals and oil are interesting. They both are trying to reverse the downtrend, and with stocks of copper and oil reducing, I suspect a long position soon (oil now, even) will pay good rewards.

The financials are key: until they get sorted, and nationization in all but name is a very probable outcome, the markets can't turn around. So ... keep your gold but don't ignore the non-shiny and liquid stuff too.

Mar 17 09:12 AM

[bthomas:]

A major problem is that expediency seldom is profitable when liquidation is concerned. The easiest sold segment is rarely the most profitable. It will likely be pennies on the dollar for the taxpayer in this method. Since we're 'in to win', the long haul is going to prove better at serving the public good. The complex derivative nonsense can be unwound etc. Time will tell. BTW. Where is Paulson these days. AIG gives GS the payout and Buffet gets a guaranteed 10%. Can you say subpoena? That's right. Paulson has immunity?


On Mar 17 07:27 AM unfaire wrote:

> I opposed the TARP. I smelt something fishy from the very beginning.
> It turned out that I was right. Most of those who got the TARP money
> are double dipping, or even triple dipping. It goes this way:
> 1. I lost billions buying some crappy financial instrument like CDS
> from, say, AIG and other cohorts.
> 2. Give me billions, tax payers, so that I can stay in business.
> I am too big to fail.
> 3. So, I got billions of tax payers’ money.
> 4. AIG as well as all the cohorts also got billions of tax payers’
> money.
> 5. Since and AIG and all the cohorts are flush with tax payers’ money,
> take back from me those crappy financial instrument and pay me in
> full.
> 6. Now, AIG and all the cohorts including me got back those crappy
> financial instruments, I am in poor house again. Tax payers please
> make me full again by giving me billions.
> 7. And, the cycle goes on again.
> Under the guise of too big to fail, we tax payers are continue to
> be taken for suckers. It is still not too late to:
> 1. Stop bailing them out.
> 2. Sell off various parts of the failing financial institutions in
> piece meal under the government supervision.
> 3. Give back the tax payers first whatever that can be recovered
> from the sale.
> 4. If there is any left, let the other stakeholders have them.<br/>In
> a capitalist society, when the price is right, i.e., cheap enough
> so that some pieces of these failing institutions can be made profitable,
> there will be someone who would buy them and make money from them.
> In doing so, most of these pieces will be healthy again and making
> money by themselves without any more of tax payers’ money.
> Bernanke said very well. I believe this is what he meant: When the
> politicians do not have the will to go against the self interests
> of the financial biggies, neglecting the well being of the all the
> rest including us the tax payers and who put them in office, we will
> never solve the problem.

Mar 17 10:34 AM

[Tiger8:]

Listen AGI is not the suckers, we the people are! They are getting paid with bonuses and trips, spa treatments and other lavish vacations and there isn't anything we can do about it. Or can we? Well we the people, own 80% of AGI so we the people can exert our executive influence over the day to day operations of that company as well as renegotiate existing contracts or buy them out at a cheap cost. But we the people have not. You see AGI is just a conduit for the wall street gang and other big banks all over the world who is still getting paid with our money. These people are making BILLIONS and BILLIONS of dollars cashing in on those CDS derivatives and where are they getting these BILLIONS of dollars from??? Well we the people is paying them. It's just a game that is being played on..."we the people......" Anyone needs a bailout join AGI.

Mar 17 12:25 PM

[nakedjaybird:]

David - enjoy your screaming about AIG, GS, etc. Keep it up. Include all secondary and tertiary causes/effects as well; hang knots (13) for the bunch. "Maddof" them. If they can't pay back the money, let them pay with time behind bars; at minimum wage. No bonus. No parachute. No stocks (well, the medieval type are fine and deserving!).

But you will have to make as much noise about the $100B as the $160 million has caused - proportionally would be even better.

String up the regulators and the leaders, anywhere, everywhere, Bush or Ombama side, and all the "businessmen".

However, regardless of what they knew and encouraged, winked at and said get on with it; or what they knew and tried to stop but couldn't; God knows what happened and the "evil doers" will certainly get what's coming to them. You can bank on it.

Mar 17 01:10 PM

[nakedjaybird:]

PS - and when I say behind bars, I really think that active road gangs is most appropriate. No TV lounges, special eateries, libraries, exercise gyms, etc., for these guys. Just think, if we convict and put all those involved "behind bars" and then onto road gangs, we have already paid for all labor the bridges and roads require. A little retraining is req'd; but, hey, real shovel jobs already paid for sounds real good to me.

Mar 17 01:15 PM

[Quant Girl:]

TLT chart does look scary; but what really scares me is what the FOMC is going to say tomorrow. If they state that they are buying the long-end, that head could become downside resistance. I sold all my TBT today. Sidelines make the most sense right now. Keep up the great work Dave, and yes there are young woman who dig your charts and commentary.

Mar 17 01:44 PM

[Yankee Runn...:]

I think the big picture to keep an eye on is the Treasury buyback of its own product. The treasury has said over the last few months that it has plans to buy back its long term bonds if there are not enough buyers. With the TIC data out yesterday of -43 billion when the market expected a positive 45 billion starts ringing the dive, dive, dive bells... One would think that if the Treasury starts buying its own bonds (equivalent to freely printing money) that the dollar will start to lose its luster, inflation will take off and oil, gold and commodity prices will rise and Uncle Wen will not be pleased.

Does anyone have a good source on where to monitor if the Treasury is buying back its own bonds?

Mar 17 04:59 PM

[Stone Fox C...:]

funny how all the early comments were negative expecting a the market to return to its downtreand. Surprise!

Mar 17 05:53 PM